Treasurer Joe Hockey announces debt limit to increase to $500 billion

The Abbott government will significantly increase the debt ceiling from $300 billion to $500 billion, with Treasurer Joe Hockey saying he wanted a higher limit to prevent a situation like in the United States where the government was brought to a near standstill.

Mr Hockey, who has long accused Labor of reckless spending and mounting debts, said the federal government expected to reach the existing debt limit of $300 billion around December 2013 and that “peak debt” would now exceed $400 billion.

“We need not look any further than the recent events in the United States to realise how imperative stability and certainty is for confidence,” he said.

In May last year, the Coalition attacked the then Labor government's decision to raise Australia's debt ceiling by a further $50 billion to $300 billion, with Tony Abbott describing it as ''really extraordinary''.

On Tuesday, Mr Hockey said he wanted to avoid what had happened recently in the United States – where a Democrat and Republican standoff shut down much of government – and he wanted to ensure that the debt limit issue was never raised again.

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“What matters is not the debt limit, it’s the debt,” Mr Hockey told reporters in Canberra, adding that the government needed a “credible” plan to lower debt levels.

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One way of reducing the debt was through the Abbott government’s commission of audit, to lower the costs of running the government.

The audit of government spending, which has sparked fears in the public service of large-scale job losses, will be chaired by the Business Council president Tony Shepherd.

Mr Hockey also announced that former Howard government minister Amanda Vanstone has been appointed to the five-member panel overseeing the review.

When asked what assets the government might consider selling, Finance Minister Mathias Cormann confirmed the government intended to sell Medibank Private.

However, he said it wasn't current government policy to sell any other Commonwealth assets.

"We're not going to speculate here today about what the commission of audit may or may not recommend. That is a matter for them," Senator Cormann said.

"But we do, of course, want them to look very much at the scope of government moving forward and whether there is a case ... in relation to the potential sale of Commonwealth assets into the future."

Mr Shepherd is chairman of Transfield Services – a construction company that works in the resources, infrastructure, property and defence industries.

Other members of the five-person audit panel include former senior public servants Peter Boxall and Tony Cole, and the former director-general of the Western Australian Departments of Industrial and Regional Development, Robert Fisher.

Dr Boxall was secretary of the Department of Resources Energy and Tourism and currently chairs the NSW Independent Pricing and Regulatory Tribunal. Mr Cole is a former Treasury secretary.

Ms Vanstone served as a minister in the Howard government from 1996 until 2007, including seven and a half years as a cabinet minister. Her ministerial career included responsibility for the portfolios of families and community services, immigration and multicultural affairs, employment and justice and customs.

Labor finance spokesman Tony Burke said Parliament should not vote to increase the debt ceiling to "half a trillion dollars" until after the mid-year budget update was released.

"What Joe Hockey is now doing on both the commission of cuts and on the issue of the debt ceiling is a million miles away from the expectations he gave the Australian people before the election," Mr Burke said.

"The party that said they were all about turning around debt has now asked for permission for it to go to half a trillion dollars."

Mr Burke said any areas the Coalition previously said were immune from cuts were now back on the table with the audit commission covering all areas of government.

Labor previously attacked the Coalition’s commission of audit, describing it as a cover for breaking election promises.

But Mr Abbott has insisted any major changes recommended by the audit will be pitched to Australians at the next election so he would have a “mandate” to enforce the policies in a second term of government.

The Coalition says the commission of audit will provide an initial report to the government before the end of January 2014 with the final report forming part of the 2014-15 budget process.